Koch-Connected Group Shows Holes in Disclosure Requirements

This is the third story in an exclusive series about the funding behind politically active nonprofit organizations that do not publicly disclose their donors. You can read the first and second stories in the series here and here.

There’s little mistaking the intent of ads like this one: “Denny Heck is putting Nancy Pelosi’s agenda ahead of our needs. Heck supported the liberal $787 billion stimulus…[and] refused to oppose new energy taxes that will kill even more jobs here. Denny Heck is a 30-year political insider and a career politician.”

The 2010 attack on Heck, who was trying to win a congressional race in Washington state, may have helped his opponent win the seat. But who exactly paid to air the ad, beyond a group with the generally upbeat name Americans for Prosperity, remains unclear. Though it’s clearly involved in trying to influence elections, AFP is shielded from having to disclose the donors that fund its work by its 501(c)(4) tax status, which labels it a “social welfare” organization.

The same goes for its affiliated 501(c)(3) foundation. Both nonprofit groups spent millions — about $40 million combined — in 2010 attacking Democratic candidates and initiatives like the new health care law and cap-and-trade proposals. And a spokesman for the groups (which share staff and overhead) tells OpenSecrets Blog that they expect to spend quite a bit more this year.

The groups — which have helped incubate the Tea Party movement — are once again under attack by President Obama, as they were in 2010 (although there are (c)(4) groups on the Democratic side, too, that refuse to name their funders). The fact that David Koch, of the conservative billionaire Koch brothers, who runs a major oil conglomerate, founded AFP and chairs its foundation only fuels calls for the groups to reveal more about their donors, which they decline to do.

Layers of Mystery

But tax forms filed by other foundations and groups show who some of the funders have been.

OpenSecrets Blog found, for example, that AFP received $25,000 from the American Petroleum Institute, the oil industry trade group, which vigorously opposes legislation that attempts to slow climate change. API also gave money to two other conservative groups that ran ads in 2010: The 60 Plus Association, which received $25,000 from API, and Americans for Tax Reform, which received $50,000, OpenSecrets Blogfound. Both of those groups sponsored numerous ads opposing Democratic candidates, often tying them to climate legislation or the new health care law.

Much larger sums of money came to the AFP entities from rightward-leaning foundations. In 2010 the John William Pope Foundation gave AFP $1.6 million; the Lynde and Harry Bradley Foundation, $520,000; and the Claude R. Lambe Charitable Foundation sent $150,000.

The Pope Foundation is the creation of James Arthur Pope, a conservative multimillionaire who heads a company that owns several chains of discount stores. Pope sits on the board of AFP. He and his extensive political activities in his home state of North Carolina and nationally were the subject of a New Yorker profile last year.

Pope is also on the board of the Bradley Foundation, a Milwaukee-based foundation that has disbursed hundreds of millions of dollars over the last decade to conservative think tanks, publications and other groups. Bradley money has helped generate interest in such issues as welfare overhaul and school vouchers and supports an anti-union outfit called the Center for Union Facts.

The Lambe Foundation’s directors include several members of the Koch family.

Still, the largest bundle of money from a single source came from a conservative 501(c)(3) conduit group called Donors Trust: It was the source of $7.65 million in funds for the AFP Foundation in 2010. Donors Trust is a “donor advised” fund: donors deposit money in accounts they set up and recommend where they’d like it to go. But Donors Trust controls the money and actually makes the contributions to other organizations; it cannot guarantee it will give to the original donors’ preferred recipients.

The arrangement provides donors with the same tax-deductibility that they would be entitled to if they gave money directly to the groups they want to assist, according to tax lawyers. But it also provides a further layer of anonymity: not even the IRS knows where a particular donor’s money goes after it gets to Donors Trust.

Donors Trust was established in 1999, according to its website, to “ensure the intent of donors who are dedicated to the ideals of limited government, personal responsibility, and free enterprise.” It’s run by Whitney Ball, who used to serve as director of development at the Cato Institute, which Charles Koch helped start decades ago. (The Kochs recently filed suit to try to obtain greater control of Cato.) Ball also heads up a sister organization, Donors Capital, which gave $10,000 to AFP’s Foundation in 2010, and transferred $2 million to Donors Trust.

In 2010, the same year it sent millions to AFP’s foundation, Donors Trust gave to some entities that aren’t tied to conservative ideology, such as the Pediatric Brain Tumor Foundation and the Cornell Laboratory of Ornithology, but many more that are: the Manhattan Institute, the Reason Foundation, the Mountain States Legal Foundation and the National Right to Work Foundation, to name a few.

The AFP Foundation also took in $350,000 from a similar, but more regional, conduit for donors, the Virginia-based Community Foundation.

The (c)(4) Conundrum

The amounts given by the entities named above to AFP and its foundation in 2010 come to just over $10.3 million; meanwhile, the revenue of the two groups totaled $39.5 million. The difference, presumably, included gifts by individuals and corporations to the groups, the details of which aren’t shared with the press or the public. As a result, the sources of roughly 75 percent of the groups’ 2010 budget remain a mystery.

Last month, seven Democratic senators wrote to the IRS asking it to investigate the political activity of 501(c)(4) groups. Politics is supposed to be a minor part of the overall operations of the groups, but oversight is scant and definitions are elastic. The agency hasn’t yet responded. Meanwhile, another set of Democratic senators asked the FEC to consider requiring the groups to disclose the identities of their contributors when the groups contribute to super PACs. Super PACs, unlike (c)(4)s, must disclose their donors. Several super PACs, such as American Crossroads on the Republican side and the pro-Obama Priorities USA Action, have affiliated 501(c)(4) groups.

Monitoring tax-exempt groups’ political activity hasn’t been a high priority for the IRS, but the 2012 work plan for the unit of the agency that oversees them says that it will “focus its examination resources on serious allegations of impermissible political intervention.” And late last month a coalition of Tea Party groups, the Ohio Liberty Council, said it had received a request for more information from the IRS in connection with its application for (c)(4) tax status. The group announced it would refuse to answer the questions, which appeared to be an effort to determine the the group’s political activity, because they infringed Ohio Liberty’s First Amendment rights.

Like many (c)(4) groups, AFP attacks candidates through their positions on issues, rather than calling explicitly for their election or defeat, as in the anti-Denny Heck ad quoted earlier. Ads paid for by the AFP Foundation in 2010 added another layer of deniability by not even naming candidates but instead going after “the pork barrel stimulus” and “wasteful spending.” Democrats that year complained that the Foundation’s ads sometimes went up in congressional districts where ads sponsored by AFP itself (which did name candidates) had just finished running, and reinforced similar messages.

So far this year, the AFP Foundation has spent about $1.4 million on ads that will benefit Wisconsin’s GOP Gov. Scott Walker, who is facing a recall election. The ads don’t mention Walker, but feature individuals proclaiming that controversial policies he has put in place are “working.” In fact, last year AFP helped push some of those same policies, the most prominent of which curtails benefits for unionized public employees. (Not surprisingly, perhaps, Koch Industries was one of Walker’s biggest contributors in his gubernatorial race).

In 2011, according to AFP spokesman Levi Russell, the groups spent $50 million on ads and other activities — including $1.2 million on the “It’s Working” campaign — which is an increase of about $10 million from 2010. Although Russell makes the point that the increase shows the groups aren’t election-focused — “Our entire makeup and structure is not tied to any particular election,” he told OpenSecrets Blog — the group was active in Wisconsin’s legislative recall elections last year, drawing accusations of engaging in dirty tricks when it sent absentee ballots to Democratic voters in at least two districts that told voters to return them by a date that was actually after the election was over.

It also hosted a “presidential summit” on jobs and the economy last April in New Hampshire, attended by several Republican presidential contenders. And it began a multimillion-dollar ad campaign highlighting the Obama administration’s relationship with the solar energy company Solyndra, which received a government loan guarantee before filing for bankruptcy protection.

Where the group’s focus on issues ends and its attention to elections begins is often impossible to determine.Tim Phillips, head of AFP, told National Journal late last year that his group had been instrumental in turning Republicans against action on climate change, and even against climate science, by scaring them about their prospects at the ballot box. “[T]here’s been a dramatic turnaround,” he said. “Most of these candidates have figured out that the science has become political…What it means for candidates on the Republican side is, if you … buy into green energy or you play footsie on this issue, you do so at your political peril.

“The vast majority of people who are involved in the [Republican] nominating process—the conventions and the primaries—are suspect of the science,” Phillips continued. “And that’s our influence. Groups like Americans for Prosperity have done it.”

Media Contact

Viveca Novak
(202) 354-0111
press@crp.org

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